Contract and Consumer Protection Law

Name: Contract and Consumer Protection Law
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Author: Mason Bennett

This chapter explores the Australian Consumer Law, including consumer guarantees, product safety, unfair business practices, and legal remedies. It explains how these laws protect individuals and apply across all Australian jurisdictions.

Mason Bennett

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CHAPTER 10 - Consumer
Protection Law
Performance Criteria
1.1 Identify client's circumstances that require advice on contract or consumer law
matters
1.2 Research contract and consumer law and related legislation, regulation and
practice
1.3 Identify different types of relevant contract and consumer transactions, and
clearly outline their legal context, establishment procedures and purpose
1 A Identify legal principles applying to contract and consumer matters that are
relevant to client circumstances
2.1 Identify areas of risk in application of law in contract and consumer matters
2.2 Analyse how legal issues impact on different types of business structures and
legal entities
2.3 Evaluate relevance to client circumstances and implication of risks for structure,
operation and performance of different legal entities
3.1 Collect and collate client's available information for analysis
3.2 Interpret, analyse and process available information to obtain required
knowledge applicable to client's circumstances
3.3 Seek advice and guidance of specialist, if required, to interpret, analyse and
synthesise client and legal information
3.4 Provide advice to clients based on their circumstances and relevant law
4.1 Review client's circumstances and apply any changes in relevant aspects of
contract or consumer law
4.2 Review relevant legal sources regularly and apply any changes in daily work
4.3 Access and use systems for keeping up with changes and maintaining up to date
knowledge about relevant legal aspects of contract or consumer law
What you will learn in this Chapter
In this Chapter, we outline how consumers purchasing goods or services are
protected by the 'Australian Consumer Law.' This includes an exploration of the
guarantees that come with all transactions between sellers and consumers; product
safety requirements; and the unfair business practices that must be avoided. Finally,
we examine how the 'Australian Consumer Law' is enforced and the remedies
available if it is breached.

Chapter Structure
10.1 Introduction to Consumer Protection Law
10.2 Consumer Guarantees
□ Guarantees Applying to Goods.
□ Guarantees Applying to Services.
□ Remedies.
10.3 Product Safety
□ Mandatory Safety Standards.
10.4 Business Practices
□ Misleading or Deceptive Conduct.
□ False or Misleading Representations.
□ Pyramid Schemes.
□ Pricing.
I Unsolicited Transactions.
□ Referral Selling.
□ Lay-by Agreement.
□ Harassment and Coercion.
□ Proof of Transaction.
I Unconscionable Conduct.
□ Enforcement and Compliance.
□ Remedies and Penalties.
10.1 Introduction to Consumer Protection
Law
The development of modern consumer law in Australia has partly been in response
to the changes and demands of its social and economic environment. These include;
□ mass consumption - commencing in the 1970's and 80's, this social and
economic behaviour continues to accelerate and grow exponentially;
□ modem marketing techniques;
□ constantly evolving technologies;
□ readily available consumer credit;
□ development of new and complex products.
In response to the changing nature of consumerism, during the 1970's and 1980's
many acts were passed by the state and federal governments to provide legislative
consumer protection, including the state fair trading acts and the very powerful
federal Trade Practices Act 1974, (TPA).

By 2008 this resulted in an extremely complicated consumer law system spread
across the country, involving much duplication and some inconsistency, including 17
state and territory acts in addition to the TPA. Consequently, following the "National
Partnership Agreement to Deliver a Seamless National Economy" by COAG, and the
Australian Productivity Commission's Review of Australia's Consumer Policy
Framework, the federal, state and territory governments agreed to implement a
single national consumer law for Australia, which came fully into force on January 1,
2011.
The Australian Consumer Law (ACL) is based on the consumer protection provisions
of the TPA and supplemented by best practice reforms from the states and
territories. The 9 consumer protection regions which already existed have been
united into one consistent and cohesive set of rules that now apply across Australia.
In consolidating the consumer law framework, the ACL is an "application law".
Enacted as a law of the Commonwealth, the states and territories apply the ACL as
a law of their jurisdiction, making such a state or territory a "participating jurisdiction".
The ACL is drafted to apply to 'persons' so is applicable to any form of business
enterprise, including a sole trader, partnership, or corporation.
The ACL, found under Schedule 2 of the Competition and Consumer Act 2010 (Cth)
(CCA) provides consumers with significant protections when dealing with suppliers
and manufacturers.
The consumer protection and unfair trading provisions of the CCA have a greater
impact on business operators and consumers than any other common law or
legislative area.
The CCA sets out clear codes of conduct for the Australian business community and
contains provisions intended to:
□ Limit the growth of monopolies.
□ Create a competitive and efficient economy.
n Regulate business and trade practices.
In this chapter we will examine:
□ The guarantees entrenched in all consumer transactions by the ACL as to the
quality and durability of goods and the provision of services.
□ Product safety.
□ Business practices which require compliance.
□ Prohibited unfair business practices.
I How the ACL is regulated and enforced.
The TPA law required consumers to rely on implied terms in the contract for sale of
goods and services between a business and a consumer to enforce their rights. The
ACL has instead established a series of consumer guarantees, clearly expressed
and requiring statutory compliance. (A side effect of which is the elimination of the
distinction between conditions and warranties as implied terms in the contracts for
sale of goods and services to consumers.) For the guarantees to apply the purchase

must be made by a person who falls under the definition of "consumer 'set out in the
ACL.
Who is a 'Consumer'?
Under the ACL, a consumer is a person who acquires:
□ Any goods or services up to $40,000;
U Any goods or services for personal, domestic or household purposes; or
□ A vehicle or trailer for use on public roads.
A person will not be a consumer if the person acquired the goods:
□ For the purpose of re-supply; or
I For the purpose of using them, in trade or commerce;
□ In the course of production or manufacture; or
□ In the course of repairing or treating other goods or fixtures on land,
As can be seen, the focus of the ACL is to protect members of the general public
when they make purchases in their day-to-day lives, rather than offering protections
for large businesses making commercial purchases.
Example
Q. Ihab buys a musicbox for the purpose of selling it to Jacqueline in the course of
his business. Will the ACL offer him protection?
A. No, because the ACL does not apply to goods acquired for the purpose of re-
supply.
Self-testing Exercise 1 ___
Do the following count as 'consumers' for the purposes of gaining ACL protection?
□ Gina buys a car for $52,000.
□ Yes, the purchase of a vehicle for use on public roads makes someone a
customer (regardless of how much it costs).
H AllGoods Pty Ltd is a store that bought bolts to help put together a range of
office chairs it is selling.
□ No, because a consumer cannot be someone who uses the goods in the
course of trade and commerce, to manufacture other goods.
H AllGoods buys $700 worth of paper clips and staplers for its staff to use.
□ Yes, AllGoods is a consumer (even though they are being used for the
purposes of trade and commerce, it is not to repair, treat, produce or manufacture
other goods).

10.2 Consumer Guarantees
Consumer guarantees are imposed by the ACL in all consumer transactions. This
means that there are several specific guarantees that must be met by businesses
when they sell goods and services to buyers who fall within the definition of a
'consumer' under the ACL. Under s64 ACL it is illegal for contracts to include terms
that attempt to remove these guarantees
Online Tip: The ACCC has a video online that helpfully outlines the consumer
guarantees enshrined in the ACL. Watch it here:
http://www.accc.gov.au/content/index.phtml/itemld/957871
Guarantees Applying to Goods
Acceptable quality of goods - s54 ACL
ACL s54 specifies that if a person supplies, in trade or commerce, goods to a
consumer, (not by auction) there is a guarantee that the goods are of acceptable
quality. Acceptable quality is defined as:
□ Fit for all the purposes for which goods of that kind are commonly supplied;
and
□ Acceptable in appearance and finish; and
I Free from defects; and
□ Safe; and
□ Durable as a reasonable consumer, with knowledge of the condition of the
goods would accept.
Durability therefore concerns the life of the goods and will change depending on:
□ The nature of the goods.
I The price of the goods (if relevant).
□ Any statements made about the goods on any packaging or label on the
goods.
□ Any representation made about the goods by the supplier or manufacturer of
the goods; and
I Any other relevant circumstances to the supply of the goods.
Breach of the guarantee of acceptable quality will not occur where.
□ Issues that would otherwise mean that goods would not be of acceptable
quality are drawn to a consumer's attention prior to supply.
□ The consumer examines the goods prior to agreeing to purchase and that
examination ought reasonably to have revealed that the goods were not of
acceptable quality.
This provision, while intended to clarify what is required is still subject to context and
circumstances. What one person may consider reasonably durable for the money,
another may not. One must still take into account factors such as the price paid,
whether the goods are second-hand and the nature of the goods to determine what

can realistically be expected. For example, a used couch that only cost $200 cannot
be expected to be of the same quality as a new couch that cost $2,500.
Example
Barry purchases a toaster from a retailer. The first time he plugs it in and uses it, the
taster sparks and triggers his electrical safety switch. The toaster is clearly faulty and
does not meet the consumer guarantee of acceptable quality.
Helpful Hint: The duration of acceptability depends upon the nature and purpose of
the goods - it is clear that goods must remain acceptable for a reasonable time after
sale but what is reasonable to some extent relies on how much a buyer pays for the
goods, and the nature of the goods. Breach of the guarantee of acceptable quality
cannot occur when the consumer knows or should have known of any defects before
purchase.
Fit for purpose - ACL s55
Tf a person supplies goods to a consumer there is a guarantee that they are
reasonably fit for any disclosed purpose and fit for any purposes they are expected
to fulfil.
Four conditions must be satisfied for this guarantee to apply:
□ Has the buyer made known either expressly or impliedly the particular
purpose for which the goods are required?
□ Has the buyer relied on the seller's skill and judgement?
□ Are the goods of a description that it is in the course of the seller's business to
supply?
I Has the buyer ordered goods under their patent or trade name so that it is
clear there is no reliance on the skill and judgement of the seller?
So, in determining whether there has been a breach, the court will examine what
information the supplier gave to the consumer. That is, a consumer has the right to
rely on the skills of the supplier and how they describe the goods.
Helpful Hint: This consumer guarantee applies when specific advice is sought from a
seller, but it also applies so that goods designed to do a particular job or fulfil a
particular purpose do so. For example, if you purchase a printer you do not have to
specifically ask whether it can print. That's its purpose.
Example
Veronica goes to her local hardware shop and asks the hardware assistant for glue
that sticks carpet to wood. He advises her that PetGlue will do the job, but she
discovers that it does not work, even though she follows the instructions. As the glue
is not fit for the purposes that the supplier stated, she is entitled to a refund.
However, if Veronica goes to the store and asks for PetGlue by name she will not be
able to bring an action against the supplier. This is because she did not rely on the
supplier's skills and he did not give her false information about the product.

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Example
Margaret has recently taken up netball and knows she must have shoes with
extremely good grip and ankle support. Margaret goes to the speciality sports shop
'Body and Sole' and tells the assistant she specifically wants shoes for netball, but
requires advice as she does not know the best kind or brand to buy. The assistant
says not to worry; she knows exactly what Margaret needs. Margaret buys the
recommended shoes but while wearing the shoes at the very next game, the shoes
lose grip on the court and Margaret sprains her ankle badly.
It turns out the shoes were simple walking shoes with little grip and ankle support
and not netball shoes. Consequently, the shoes and the assistant's actions do not
meet the consumer guarantee of fitness for purpose.
Case
Lavrick v Lease Auto Pty Ltd (2002) FCA 599
The applicant was injured when a wheel of a hired motor vehicle which he was
driving came off. He recovered damages for breach of the undertaking as to fitness
implied into his hire contract.
Correspondence with description - ACL s56
If a person supplies goods to a consumer by description, there is a guarantee that
the goods the consumer receives will correspond or match that description. This
guarantee commonly applies where the consumer has not actually seen the goods
when they decide to buy them, but makes their decision to purchase relying on the
seller's description of the goods. Examples include ordering goods from a catalogue
or relying on packaging. This guarantee is also particularly important when
considering its application to online shopping from Australian sites.
Example
H Eddie goes to the supermarket to buy cornflakes, his favourite breakfast cereal.
He goes to the cereal aisle and finds a box which displays a picture of a bowl of
cornflakes and words which describe the contents of the box as a certain volume of
cornflakes made with certain ingredients. Without physically seeing or touching the
crispy golden flakes, Eddie makes his decision to buy the cornflakes based upon the
description of the goods on the packaging.When Eddie returns home and opens the
box, he is entitled to expect it is cornflakes as described in the box and not muesli.
The goods must match the description.
□ Patsy feels the need for some retail therapy and logs on to the Australian
website 'Bags Galore'. There she finds a picture of a handbag with many pockets
which is described as red leather with silk lining. Patsy purchases the bag, but when
it arrives it does not have as many pockets as the picture and is made of plastic, not
leather. This is a major failure of the guarantee that the goods should correspond
with their description and would entitle Patsy to return the goods and receive a
refund. If goods are supplied by description as well as by reference to a sample or
demonstration model both guarantees apply.

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Correspondence with sample or demonstration model - ACL
S57
If a person supplies goods to a consumer by reference to a sample or demonstration
model there is a guarantee that the goods will correspond or match that sample or
model. Basically this means that if a consumer first sees a sample of a good when
making their decision to purchase, the goods the consumer receives must be the
same in quality, state and condition as the sample and be free from any defect. If
goods are supplied in reliance on a sample, the consumer must have a reasonable
opportunity to compare the goods received with the sample to ensure they match
before acceptance takes place.
Example
□ Patsy also visited the furniture shop 'Fabo Furniture', where she found a
beautiful red couch on display which was exactly what she wanted - the right size,
shape, colour and price.When she went to buy it she was told that it was only a
display model, and that she would have to order the couch she required. Patsy did
so, but when it was delivered it was much smaller and a horrible shade of browny
red. Patsy would not have to accept the delivered couch as the seller has not met
the guarantee that goods must correspond with description.
□ Paul attended an outdoor furniture shop and found the perfect natural wicker
table and chair setting for his veranda for $1,500. When he tried to purchase the
setting the shop assistant said it was only a display model, and that an actual setting
would have to be ordered in and delivered to him. Paul agreed and paid the $1,500
for the setting he had chosen. Paul was very upset when the setting delivered to him
was plastic instead of natural wicker, a completely different colour and material to
that which he had ordered. Consequently, the furniture shop has not met the
consumer guarantee for correspondence with sample.
Express warranties - ACL s59
An 'express warranty' is where suppliers or manufacturers make promises about the
quality of their goods (e.g. a knife will be able to cut through leather). A 'warranty
against defects' ('manufacturer's warranty') promises that certain action will be taken
if something goes wrong with the goods (e.g. repair the goods for free, replace the
goods). These warranties are treated as consumer guarantees meaning that
suppliers and manufacturers are obliged to live up to these promises if they make
them. It is important to understand that these manufacturer-made 'express
warranties' do not replace the other statutory consumer guarantees provided under
the ACL, they are an addition to them.
Helpful Hint: An express warranty in relation to goods under s2 ACL means an
undertaking, assertion or representation:
(a) That relates to:
(i) The quality, state, condition, performance or characteristics of the goods; or
(ii) The provision of services that are or may at any time be required for the
goods; or
(iii) The supply of parts that are or may at any time be required for the goods; or

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(iv) The future availability of identical goods, or of goods constituting or forming
part of a set of which the goods, in relation to which the undertaking, assertion
or representation is given or made, form part; and
(b) That is given or made in connection with the supply of the goods, or in connection
with the promotion by any means of the supply or use of the goods; and
(c) The natural tendency of which is to induce persons to acquire the goods.
Repairs - ACL s58
Consumers are guaranteed an opportunity to have their goods repaired. That is,
manufacturers or importers must take reasonable action to ensure repair of goods is
available for a reasonable time after purchase. This may include taking such steps
as setting up a place for consumers to take items for repair, or ensuring spare parts
are available. For example, Jake purchases a table from a manufacturer, Table
TopCo. If the leg of the table breaks off soon after purchase, Table TopCo is
obligated to provide a way of repairing the table. This does not necessarily mean
Table Top Co have to pay for the repairs (it will depend on why the leg broke off, and
if there are any warranties in place and so forth) but they have to provide a way for
repairs to be accomplished.
Online Tip: One of the most common areas of consumer complaint concerns faulty
electrical or whitegoods, and how to return them for refund, replacement or repair.
You may like to go to the following sites to look firstly at what Choice, the Australian
Consumer Associated discovered, and the industry code prepared by the ACCC.
https://www.choice.com.au/shopping/consumer-rights-and-advice/your-rights/
articles/ consumer-law-and-extended-warranties
http://www.accc.gov.au/publications/electrical-whitegoods-an-industry-guide-to-the-
australian-consumer-law
Right to title - ACL s51
A seller must have the right to sell the goods. That is, they must have full title
(ownership) of the goods, in order to hand them over to the consumer. If they only
have limited title, they must make the consumer aware of this.
Undisturbed possession and freedom from undisclosed securities - ACL
ss52-53
'Undisturbed possession' means that a third party will not claim to be the true owner
of the goods or have a right in the goods after the sale has taken place. Further, a
consumer has the right to assume when they pay for goods that the goods have not
been used as security by anyone else. That is, the goods have not been promised to
another as security for a loan. This would mean that another person may be entitled
to these goods if the loan is not repaid. If these complications exist, the consumer
must be informed of them beforehand for the transaction to be valid.
Example

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Q. Darla sells Alfonso an oven but does not tell him that, she has used the oven as a
personal property security to support a loan. Has Darla done anything unlawful under
the ACL?
A. Yes, she must live up to the guarantee of a Right to Title. This means that if they
do not have full title to the goods, they must make the consumer (Alfonso) aware of
this.
Guarantees Applying to Services - ACL s60
Any services provided to the consumer in the course of trade and commerce must
be provided with care and skill. Unless the consumer and service provider have
already agreed to a certain time frame for the service to be provided, the consumer
is entitled to assume that it will be done within a reasonable time (s62).
Self-testing Exercise 2___
□ Katherine buys a camera for $250 and it falls apart after 18 months. Her friend's
camera is of a similar make and is still working after 18 months. Her friend paid
$170. Does the cost have any relevance in determining whether the camera was of
acceptable quality'?
H Yes, one can take the cost into account. A consumer is entitled to expect that a
more expensive item will last at least as well as a less expensive item.
I Ann bought a lamp from Margaret. The lampshade fell apart after a week. Ann
wanted a new lampshade for the lamp, but Margaret refused. Has Margaret done
anything unlawful? Explain your answer.
□ Under s58 of the ACL, the opportunity for repairing broken goods has to be
made available by Margaret. Margaret should, therefore, have spare parts available
for Ann.
□ Bindy agreed to mow Ally's lawn as part of her business. Bindy showed up 4
months after their agreement to do the job. Has Bindy done anything unlawful?
Explain your answer.
□ Bindy has acted unlawfully. Services should be provided within a reasonable
time (unless Ally and Bindy came to some other arrangement of when the lawn
should be mowed) (s62 of the ACL).
Remedies
When consumer guarantees are breached, there are several remedies available.
The remedy will depend on which guarantee was not met, and the surrounding
circumstances.
Remedies Relating to Goods
If there are 'major failures' (i.e. defects) with goods, the consumer can choose to:
□ Obtain a refund.
□ Obtain an identical replacement.
□ Detain the goods and get compensation for the problem.

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□ Have the goods repaired (ss260-261, ACL).
'Major failures' may be found in situations where the goods are unsafe, unfit for use,
significantly different from the description, or where the reasonable consumer simply
would not have bought the goods if they knew about the problem.
A consumer will not have the right to a refund or replacement where the rejected
goods cannot be returned (e.g. they have been thrown away or lost) or where too
much time has passed (this will depend on several factors including how long the
goods could reasonably be expected to be useable).
If a consumer wants the goods repaired, the supplier must fix the goods within a
reasonable time. If they refuse or take too long to fix the goods, the consumer may
take the goods elsewhere to be fixed, and request that the supplier pay the costs.
Where the failures are minor, the consumer cannot automatically demand a refund if
the goods can be repaired within a reasonable time. In this situation, the choice is up
to the supplier, whether they will go ahead with the repairs or offer some other
remedy such as a remedy or replacement.
Example
According to the ACCC Electrical/ Whitegoods Guide to Industry Code the following
would amount to major failures with a product:
H When a reasonable consumer would not have bought the product if they had
known about the problem - e.g. no reasonable consumer would buy a
washing machine if they knew the motor was going to bum out after 3 months.
□ The product is significantly different from the description, sample or
demonstration model shown to the consumer - e.g. a consumer orders a red
food mixer from a catalogue, but the mixer delivered is green,
□ The product is substantially unfit for its normal purpose and cannot be made
fit within a reasonable time - e.g. an underwater camera turns out not to be
waterproof because it is made from the wrong material.
□ The product is substantially unfit for a purpose that the consumer told the
supplier about, and cannot be made fit within a reasonable time -e.g. a video
card is unsuitable for a consumer's computer, despite the consumer telling the
supplier the computer specifications.
□ The product is unsafe - e.g. an electric blanket has faulty wiring.
U Where there is a minor failure that can be fixed but is not actually fixed within
a reasonable time. Determining what constitutes a reasonable time will vary
depending on the circumstances of each case such as;
o Whether the product is new or second-hand.
o How many times repair of the fault has been attempted.
o The nature of the fault and whether it can be identified.
If several attempts have been made at repair, this indicates the original assessment
may have been wrong and the fault was not one that could be fixed within a
reasonable time. The consumer would therefore be entitled to the remedies for a
major failure.

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